Vodafone wins India's Hutch Essar, shares rise

Vodafone shares climbed in early Monday trading after it beat rival suitors with an $11.1 billion bid for a controlling stake in Hutchison Essar, India's fourth-biggest mobile phone firm.

The deal, confirmed late on Sunday, gives Britain-based Vodafone a powerful stake in the world's fastest-growing major mobile phone market which will help offset slowing growth in its European operations.

But is also a high-stakes move from Vodafone, the world's biggest mobile phone operator by subscribers outside China, which has been accused by some investors of overpaying for acquisitions.

Vodafone shares rose 1.8 percent to 152 pence, suggesting the firm had struck the right balance, however.

"We expect most Vodafone shareholders to welcome this transaction with relief that a bidding war has been avoided," JP Morgan analysts wrote in a research note, adding that the performance of Turkish unit Telsim showed Vodafone had a good track record of achieving growth in emerging-market businesses.

But WestLB analyst Morten Singleton was more sceptical.

"Vodafone has agreed to pay nothing less than top dollar," he wrote in a research note.

Vodafone said its purchase of Hutchison Telecommunications'

67 percent stake in Hutchison Essar valued the Indian firm at $18.8 billion, including debt.

The deal is Vodafone's third-biggest ever and it beat three rival suitors, India's Reliance Communications and the Hinduja and Essar groups, the last of which owns 33 percent of Hutchison Essar.

Shares in Hong Kong billionaire Li Ka-shing's Hutchison Telecommunications International Ltd., which had risen 28 percent since the start of November in anticipation of a sale, were suspended on Monday. The company was expected to make a statement later.

The transaction is the fourth-largest involving an Asian company outside Japan, based on Dealogic figures, and marks another lucrative exit for Li, whose dealmaking is legendary.

"They hit the jackpot again," said Francis Lun, general manager at Fulbright Securities in Hong Kong. "Considering that they only put HK$20 billion (US$2.6 billion) into India, it has to be a good deal for them."

Shares in Hutchison Telecom's parent, ports-to-property conglomerate Hutchison Whampoa Ltd., rose 0.68 percent and its bond spreads tightened on hopes that deal proceeds will be used to lower debt and improve its credit profile.

Shares in No. 2 Indian carrier Reliance, seen as Vodafone's biggest bid rival, skidded as much as 5.7 percent.

"REASONABLE PRICE"

Vodafone is a serial acquirer and its 180-billion-euro ($234 billion) purchase of Germany's Mannesmann in 2000 was the biggest company takeover in history.

But it has also been accused of overpaying. It took an impairment charge of more than 23 billion pounds in its last financial year, largely against past acquisitions, leading it to report the biggest ever annual loss by a European company.

"We have got this at a very reasonable price and we're thrilled ... We are feeling very good in terms of talking to shareholders and the returns we will provide them," said Chief Executive Arun Sarin, a U.S. citizen who was born in India.

But analysts said the deal was not cheap. Macquarie said the price valued Hutchison Essar at a forward enterprise value to EBITDA (earnings before interest, tax, depreciation and amortization) multiple of 16.4 times. Larger rivals Bharti and Reliance trade at 13.6 times and 11.7 times.

India's mobile phone market is expected to grow to 500 million users by 2010 from 150 million now, adding 5 million to 6 million users a month.

The deal is the latest profitable trade for the 78-year-old Li, who built a plastic flower business into a sprawling global empire that makes him the richest person living in Asia.

source news : news.yahoo.com